b. Conglomerate Inc. is a company in three different businesses and its performance in each business...

 

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b. Conglomerate Inc. is a company in three different businesses and its performance in each business for the most recent year is as follows (all figures are $ million). i. ii. Business Steel Technology Financial Services Business Steel Revenue 1,000 500 200 Technology Financial Services EBITDA 50 50 50 The company has $200 million in debt outstanding and no cash balance. The interest expense is allocated to each of the divisions based upon the debt of that division. There are 50 million shares outstanding. The median values for different multiples for comparable firms within each business are as follows: Interest 10 5 10 Multiple EV/EBITDA EV/Sales P/E Net income 15 30 10 Median 5.00 1.50 10.00 Assuming that each business of Conglomerate should trade at the median value for other companies in that business, estimate the value of equity per share in Conglomerate Inc. (8 marks) What are the potential problems of the approach in (i) above? How could these problems be overcome in the relative valuation framework? (7 marks) b. Conglomerate Inc. is a company in three different businesses and its performance in each business for the most recent year is as follows (all figures are $ million). i. ii. Business Steel Technology Financial Services Business Steel Revenue 1,000 500 200 Technology Financial Services EBITDA 50 50 50 The company has $200 million in debt outstanding and no cash balance. The interest expense is allocated to each of the divisions based upon the debt of that division. There are 50 million shares outstanding. The median values for different multiples for comparable firms within each business are as follows: Interest 10 5 10 Multiple EV/EBITDA EV/Sales P/E Net income 15 30 10 Median 5.00 1.50 10.00 Assuming that each business of Conglomerate should trade at the median value for other companies in that business, estimate the value of equity per share in Conglomerate Inc. (8 marks) What are the potential problems of the approach in (i) above? How could these problems be overcome in the relative valuation framework? (7 marks)

Answer rating: 100% (QA)

i To estimate the value of equity per share in Conglomerate Inc we need to calculate the enterprise value EV for each business segment and then sum them up The enterprise value represents the total va... View the full answer